Bangladesh: Interest Rates Policy for MFIs Streamlined

Apr 2009
Bangladesh, April, 28 2009 - The micro-credit regulatory authority (MRA) has streamlined the interest rates policy for micro-finance institutions (MFIs) to protect the interest of the country's thousands of small borrowers. Under the new measure, the MFIs will have to fix the interest rate on micro-credit at a flat 15 per cent. But it must not cross 30 per cent as an effective interest rate by the end of year.

The decision was taken at a meeting held at the central bank Tuesday with its Chairman and the Bangladesh Bank (BB) Governor Salehuddin Ahmed in the chair.

"We've decided to fix the interest rate on micro-credit as an interim measure," a MRA senior official told the FE after the meeting, adding that the MRA will announce a final interest rate policy for the MFIs after conducting an in-depth study.

He also said a gazette notification will be published in this connection within a month after completing all official procedures.

The meeting also decided that no MFI will collect over 80 per cent deposit from their members against their total outstanding loan portfolios.

"We've set the target on collection of deposit from their members to avoid any financial fraud," the MRA official said, adding that the MFIs will be empowered to purchase any fixed asset on the basis of executive committee's approval instead of the board of directors' consent.

The MRA also asked the non-governmental organisations (NGOs), which are dealing with the micro-credit, to separate their micro-credit activities from entire function for complying with rules and regulations properly.

"The entire organisation will come under our monitoring and supervision if they do not separate their micro-credit operation from other businesses," the official noted.

The MRA has already issued over 400 licences to the MFIs against 4240 applications, which were submitted to the central bank seeking permission for micro-credit operation.

"We're issuing licences to the MFIs after securitising their documents properly to ensure discipline in the sector," the MRA official said, adding that every MFI has to submit relevant documents before getting licences.

Each MFI must obtain licence as a mandatory requirement of the micro-credit regulatory act to operate in the country.

The country's micro-credit watchdog plans to start monitoring and supervision of the overall micro-credit operations across the country after completing issuance of licences.

"We want to ensure accountability and transparency of the MFIs through strengthening our monitoring and supervision that will also help improve their efficiencies," another MFI official told the FE.

The government earlier formed an eight-member micro-credit regulatory authority, headed by the BB governor, to issue licences to all private MFIs for ensuring transparency and accountability.

Micro-credit operation of Grameen Bank and NGOs like BRAC, ASA and Proshika has spread all over the country. These three NGOs and Grameen Bank together account for more than 80 per cent of total market share of micro-credit both in terms of coverage and disbursement.


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